DBS sees Philippines getting ratings upgrade in ’13

There is a “definite possibility” that the Philippines could get investment grade rating in 2013 for its long-term foreign borrowings, following promising results of the government debt management efforts, according to Singapore-based DBS Group.

DBS said in a new research note that the Philippine government’s debt management over the past few years “has been particularly impressive.”

The financial services provider noted that outstanding Philippine government debt had fallen to 50.9 percent of gross domestic product at the end of 2011 from a peak of 74.4 percent in 2004.

“Financing risks in the near term has also been sharply reduced,” DBS said. “Short-term debt made up just 5 percent of total debt outstanding compared to 10 percent in early 2011.”

It also observed that the allocation for medium- and long-term debt now accounts for 95 percent of the debt stock.

“The budget has also been brought under control and a deficit amounting to 2.4 percent and 2 percent of GDP is projected for 2012 and 2013, respectively,” it added.

In terms of sourcing, DBS noted that foreign debt made up 35.8 percent of total debt outstanding in July compared to 39 percent in early 2011.

“This is helped by the rise of foreign reserves this year despite the slowing of inflows into Asia that resulted in many countries actually seeing their foreign reserves stagnate or even decline,” DBS said, adding that the Philippine economy’s strong growth performance in the first semester attracted continued inflows.

“In terms of its ability to repay debt (both local and foreign), the Philippines is in a much improved position compared to just a few years ago,” DBS said.

“It is not surprising that it won multiple upgrades from credit rating agencies over the past two years,” it added. “An investment grade rating is definitely a possibility in 2013.”

Currently, Standard & Poor’s and Fitch Ratings both rate Philippine foreign currency long-term debt at a notch below investment grade. Moody’s Investor Service gives the country a rating of two notches below investment grade, but with a positive outlook.